Owner and Operator Insurance: Definitions and Impact of Non-Truck, Bobtail and No Load Liability
As in any business model, Motor Carriers (MC) using Owner Operators (OO) enjoy certain benefits while taking additional risks. One of those risks is the possible “uninsured” exposure of the OO while it is not in a “commercial use” capacity for the Motor Carrier. MC’s commercial auto (AL) truck or commercial liability insurance policy provides coverage for units owned by motor carriers, as well as any rented tractors and trailers during their rental time. Coverage ceases for an Owner Operator once it is no longer in a “business use” capacity for the Motor Carrier. The concern is that the OO continues to use your vehicle while displaying the MC placard and may not have other insurance available. Many times, the “deep” pocket of the MC is used for the injured third party to recover.
Three products have been developed to address the coverage gap for the Owner Operator.
Liability not related to trucks:
Low cost
Protection of Motor Carriers Civil Liability: Low
Market availability: High
Non-Truck Liability provides protection for “personal use” by utilizing a commercial truck or auto liability policy form and attaching a “business use” exclusion. The difficulty arises because the definition of “commercial use” is not generally defined in politics, but is derived directly from various state and federal court decisions interpreting this sentence.
Unfortunately, “commercial use” has been interpreted very broadly and extends beyond “dispatch”. Here are some typical scenarios that would not be covered by the no trucks policy due to the broad interpretation of the “commercial use” exclusion:
- OO drops load and heads home to include grocery store trip diversion (courts find OO is owed a trip home)
- OO takes the vehicle to the garage on the weekend for maintenance (the courts find that OO is maintaining the unit in accordance with MC’s leasing requirements)
- OO is out of town, between charges. He goes to the cinema. (Courts determine OO is out of town by MC’s indication)
Coverage Example: OO uses his truck in his personal time to run to the grocery store and collides with another vehicle.
Civil liability:
Cost: Medium
Protection of Motor Carriers Car Liability: Medium
Market availability: low
Many in the trucking industry use the same terminology for Bobtail liability and non-truck liability, when in fact they are quite different. Bobtail defines coverage as “anytime the trailer is loose,” whether or not the motor carrier has dispatched the OO.
Coverage Example:
- OO drops the load and moves to pick up the next load.
- OO drops the load at the end of the day and takes it home.
- Please note that the Bobtail policy will not respond every time a trailer is attached, even if it really is a personal situation, for example:
- OO brings home an empty trailer and runs to the store on the weekend.
- OO uses his tractor to move a mobile home on the weekend.
- OO helps a friend move by pulling a trailer with household items
Liability without load:
Cost: High
Protection of Motor Carriers Car Liability: High
Market availability: very low (per class)
Unladen Liability provides the least ambiguity in coverage and the broadest level of protection for the MC and OO. This policy provides coverage during transportation (no trailer attached), as well as transportation without cargo (trailer does not contain or carry any cargo, without bill of lading), regardless of dispatch. The difficulty with this line of coverage is low availability (it is generally not available in a master settlement deduction program; rather, the OO’s need to obtain it directly).
There are advantages and disadvantages to each of the hedging models that vary depending on the risk tolerance and operations of the Motor Carrier and Owner Operator. Deciding on the right program can be critical to managing your risk. Enlist the assistance of a qualified insurance broker to review your current insurance programs and operations and to provide suggestions and options that best suit your needs.